1. Management: Making it
Work
BY:
APARNA ALAPATI
GITIKA BHATLA
NICKY KUMARI
SAKSHI KHARBANDA
VANSHIKA AHUJA

2. Management: Making It Work
 Pay management issues
• Managing Labor costs
• Understanding embedded controls
• Analyzing value-added returns
• Communication
• Designing the compensation department
 Contract system – decentralized decision making
 Compensation system- objectives in pay model
 Answers to basic questions
• What is the impact
• Does it help
• How

3. Managing Labor Costs

4. Exhibit 18.2: Staffing Analysis
Identifies Reasons for Pay Variances

5. Reducing Headcount
 Often used to cut labor costs
 Cuts take form of layoffs or exit incentives
 Advantages of Reduction in Force (RIF)
 Reduces benefit costs
 Opportunity to re-shape workforce and create positive
sorting effects
 Layoffs- short term and long term effects

6. Core and Contingent Employees

7. Segmented Supplies-
St. Luke’s Labor Cost Model
Source: © George T. Milkovich.

8. Hours
 Hours of work is used to define employment
 Firms examine overtime costs versus hiring costs to
manage labor costs
 Three factors in the labor cost model are not
independent
 Employment
 Cash compensation
 Benefit costs

9. Controlling Average Cash Compensation
 Average cash compensation includes average salary
level plus variable compensation payments
 The variable component will rise and fall in line
with business performance
 Adjustments to average cash compensation level
can be made in two ways
 Top down
 Bottom up

10. Control Salary Level: Top Down
 Factors influencing decision on the increase of the
average pay level for the next period:
 Current year’s rise
 Ability to pay
 Competitive market pressures
 Turnover effects
 Cost of living

11.  Current year’s rise
 Ability to pay – Financially healthy/troubled
employers
 Competitive market pressures
 Turnover effects (churn/slippage) – annual
turnover*planned average increase

12.  Cost of living
 CPI
 Changes in prices in the product and service markets
 Changes in wages in labor markets
 Rolling it all together

13. Control Salary Level : Bottom Up

14. Ethics: Managing or Manipulating?
 Managing compensation ethically is increasingly
complicated for several reasons
 Pay really matters
 The fierce pressure to achieve results
 Use of pay for performance –adds to the pressure

15. Cont….
 Performance-based pay is not the only reason
that presents ethical dilemmas
 A starting point to judge our ethical behavior
may be our compensation model presented with
the advice:
 Strive to achieve both efficiency and
fairness.

16. Embedded Controls
 Controls on managers’ pay decisions come
from two different aspects of the compensation
process
 Controls that are inherent in the design of
the techniques
 The formal budgeting process

17. Range maximums and minimums
Range set the maximum and minimum pay for the
work
 If employees are paid above the range
maximum, these rates are called red circle rates
 Pay below minimum is used for trainees, and may
occur if outstanding employees receive a number of
rapid promotions and pay increases have not kept
up
Broad bands are used to offer managers greater
flexibility compared to a grade-range design

18. Compa-ratio
 Assessing how managers pay employees in relation
to the midpoint
 Compa-ratio is calculated:
 It can be calculated for individual employees, for
organization units, for each range etc

19. Cont….
 Variable pay- it must be re-earned each period
 Analyzing costs- its done prior to recommending
pay increase
 Analyzing value added: here there is a shift in how
compensation is viewed
 Compensation becomes an investment as well as an expense
 Decisions are based on analysis of the return on this
investment

20. Communication: Managing the Message
 It signals what is important and what is not ?
 Employee’s understanding of the pay system is shaped:
 Indirectly through the paychecks they receive
 Directly via formal communication
 Reasons for communicating pay information
 Employees misperceive system and differentials are
underestimated.
 Considerable resources are used in designing a fair and
equitable system, it is imp to gain an accurate view of the
system
 World atWork recommended a 6 stage process of
communication

21. Compensation communication
cycle

22. Conducting formal communication sessions for various
audiences

23. • Avoid formal communication if pay system is not based on
work related or business related.
• Few employers use open book approach as it results in high
commitment, improves employee attitudes and performance.
• How employees process information and make decisions, the
figure below offers some ideas when contemplating
compensation communications:

24. Pay as change agent
 Compensation plays a role when organisations restructure.
 Strategic changes in business strategy means that
compensation strategy must be realigned as well.
 Pay changes play two roles in any restructuring
 Leading catalyst for change
 Follower of change

25. Structuring the compensation function
• Centralization – decentralization
• Flexibility within corporate-wide principles
• Reengineering and outsourcing